Australia pins hopes on big spending plan

Wayne Swan. Photo / Mark Mitchell

Australia intends spending its way out of recession with hefty borrowing and a A$22 billion ($27.8 billion) public works programme aimed at important areas of the economy and providing new rail, road and port facilities.

The programme, outlined in Labor's second Budget last night, will be supported by extensive investment in communications, energy, education and health, and savings of A$22.6 billion by trimming federal spending over the next four years.

Treasurer Wayne Swan said these savings and structural reforms in pensions and other areas would extend beyond the present recession and offset the increasing costs to the economy of Australia's ageing population.

"We're not going for popularity," Swan said.

"We're going for jobs and nation-building recovery."

Faced with a deficit that will reach an 80-year high of A$57.6 billion in 2009-10, Swan framed his Budget on a strategy of big public spending and expectations of a return to surplus within six years.

He said the Government faced a four-year, A$210 billion dive in revenue - the biggest downturn in Australian history - and without its stimulus packages the impact on the nation would have been four times worse.

The Budget could have been balanced by pushing up taxes and slashing and burning vital services in areas such as health, but had instead aimed to offset a temporary collapse in revenue with responsible borrowing that would stimulate an economy starved of private investment.

An estimated 210,000 jobs would be saved, Swan said.

Treasury forecasts predict hard times even after an expected gradual recovery begins next year, saying that Australian policy could only hope to mitigate the magnitude and ferocity of the international economic crisis.

Total business investment is forecast to dive 18.5 per cent in 2009-10, household consumption will continue to contract, dwelling investment will remain flat, and exports will fall 4 per cent and imports 6.5 per cent.

Gross domestic product is forecast to contract to minus 0.5 per cent, and unemployment to rise to 8.25 per cent.

Swan's main focus is a massive "nation-building" infrastructure programme that would support about 15,000 jobs a year - peaking at about 18,000 in 2011 - boosting short-term demand for goods and services and lifting medium and long-term economic growth.

Targets embrace an A$8.5 billion injection in metropolitan rail networks, A$3.4 billion for roads - including the key east coast freight corridor between Melbourne and Cairns in north Queensland - and ports in Western Australia and the Northern Territory.

Swan has directed A$4.5 billion to incentives to boost innovation in clean energy and low-emissions technology, with further spending on energy efficiency, solar energy and renewable technologies.

Other proposals include starting a high-speed national broadband company, spending an extra A$3.2 billion on hospitals, cancer care and medical research, and putting A$5.3 billion over six years into tertiary education, research and innovation.

Other measures include an 18-month, Government-funded parental leave scheme, increased pensions - but with the age eligibility increased to 67 - and tightened rules and tougher criteria for superannuation and private health rebates for higher income earners.

Skilled migration has been reduced by almost 20 per cent to ease employment pressures.

Small business gained more than A$500 million in new tax breaks, research and development tax credits, support services, and export development grants.

LOOKING AHEAD
* Australia's economy is forecast to shrink half a percentage point in the next fiscal year then rebound to 2.25 per cent growth in the 2010-11 fiscal year.
* Deficit expected to reach A$57.6 billion in 2009-10.
* Business investment forecast to dive 18.5 per cent.
* Unemployment to peak at 8.25 per cent.